Japan had the first world leader to meet with President-elect Trump. For the first time in eleven years, Putin just visited Japan for two days of talks. Trump’s proposed Secretary of State was awarded a Friendship medal by Vladimir Putin. What if anything do these have in common? Maybe nothing, but I can’t help but consider the implications for a Grand Alliance between Japan, Russia and the United States to contain China’s expansionist tendencies

Until recently, only Mao and Deng Xiaoping have achieved the title of “Core Leader”. Deng wanted the Communist Party to become a consensus-based system with rotating leadership and he would be the last Core leader. Current Premier Xi has put the end to that with his recent appointment as Core leader. We will have to see if this turns out to be an over-reach or the start of Emperor Xi’s dynasty.

China has always been a difficult country to rule. There are five distinct regions and multiple languages. There have only been a few times where a dynasty has been able to rule them all. Revolutions start, not when things are at their worst, but when rising expectations are dashed. Xi can see the demographic wall they are about slam into, as a result of the one-child policy lasting too long. He also knows that there will be economic dislocations, as they try to change from an Export-driven to a Consumer Society.

His biggest threat internally may not come from the aging establishment’s backlash, but from a youthful burgeoning left-wing Maoist movement. That is why the charismatic populist Bo Xilai was the victim of one of the first Stalin-like Show Trails. Xilai’s popular message was that Mao’s revolution has been hijacked by the corrupt Princelings – a group that Xi was fortunate enough to be born into.

China doesn’t it view itself as a Rising Power, but a a Returning Power. After all, with just 250 years under their belt, these Americans are only upstarts. While Kissinger was secretly meeting with Deng for Nixon’s Machiavellian opening to China, he asked Deng what he though about the French Revolution. After a pause, he said “We’ll have to see how it turns out”. China takes the long view of history and their future.

Embattled leaders will often use external threats to distract a restless populace. Xi knows the end of China’s economic miracle will bring unrest. Xi’s expansionist foreign policy has unnerved its neighbors, the most powerful of which are Russia and Japan. They could be open to a Grand Alliance with the United States to counter China’s rise. After all the US joined with Stalin to defeat what we thought was the greater foe – Hitler.

There is no love lost between Russia and China. They fought a seven month undeclared border war in 1969. China is financially taking over Mongolia and expects its other neighbors to eventually become vassal states also.

Russia had always been torn. It’s either a European or an Asian power. The construction of St. Petersburg was supposed to tilt Russia to the West. Putin rose to power from there. He has revived the Russian orthodox church. Putin’s Russia feels more comfortable with the West than the East. Russia is a declining power, who is afraid of the dragon’s growing power on it’s western borders. Japan is afraid too. Fear of a common enemy can make for strange bedfellows. Trump’s unconstrained collection of no-nonsense generals and plutocratic deal makers could think far enough outside the box to try and pull off such a Grand Bargain.

One of the great fears in all this is that a gray-zone conflict—involving, say, U.S. and Chinese military vessels sparring in the South China Sea, or Russia threatening to deploy its nuclear arsenal—could tumble into an open one when some party miscalculates.

More likely, however, is that the patterns on display in 2015 will become more pronounced in the coming year. According to Laura Jackson, China sees the sea, and the earth generally, as only the start of its Three Warfares campaign—a testing ground for ambitions to control portions of outer space, which Chinesemilitary and legal thinkers see, in the words of one Chinese official, “as a natural extension of other forms of territorial control.” Russian military theory envisionsthe wars of the future moving from “direct clash to contactless war,” from “direct annihilation of the opponent to its inner decay,” from “war in the physical environment to a war in the human consciousness and in cyberspace.” In June, aNew York Timesinvestigation uncovered how a series of web campaigns tried to sow panic in the United States by spreading fake Twitter messages, Wikipedia pages, and online news reports about everything from an ISIS attack in Louisiana to Ebola outbreaks and police shootings in Atlanta. This was not the work of mere pranksters, but targeted disinformation operations launched from a Kremlin-backed “troll farm” in St Petersburg. They were perhaps some of the first skirmishes in what Russian military theorists believe to be the battleground of the future: the minds of men and women, where every business deal, retweet, and Instagram post becomes a way of influencing what these theorists call “the Psychosphere.”

It’s a brave new war without beginning or end, where the borders of peace and war, serviceman and civilian have become utterly blurred—and where you and I are both a target and a weapon.

War, however, is not inevitable. Four of the 16 cases in our review did not end in bloodshed. Those successes, as well as the failures, offer pertinent lessons for today’s world leaders. Escaping the Trap requires tremendous effort. As Xi Jinping himself said during a visit to Seattle on Tuesday, “There is no such thing as the so-called Thucydides Trap in the world. But should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.”

Governments can now block anticensorship tools such as the Tor anonymity network or encrypted VPN connections, for example. But a new censorship evasion tool called Marionette may help reverse that trend. Marionette helps Internet traffic that would normally be blocked masquerade as ordinary, permitted online behavior. It can be configured to make your activity emulate just about any type of “innocent” activity, such as online gaming or Skype, by analyzing samples of that kind of traffic. Marionette can even be programmed to respond in the right way to maintain its cover if actively probed by a censorship computer system, a tactic China sometimes uses to investigate suspicious connections before blocking them.

Coull hopes that Marionette will one day be integrated into the anonymity network Tor or the censorship evasion tool Lantern—two systems backed by the U.S. government and used by activists, government workers, and NGOs. He’s already talked with Tor developers about Marionette’s open-source code. The system was introduced in a paper at the USENIX Security conference in Washington, D.C., this month, and developed by Coull with Kevin Dyer andThomas Shrimpton of Portland State University

we are witnessing four changes in international affairs that will lead to renewed great power conflict.

The first change is the slow disengagement of the United States from the dominating role it has played after World War II, marked most notably by a lowering of its defense spending and commitments. America has retreated from its role of protector of the world order, but the current occupant of the White House clearly ranks foreign affairs as an annoyance compared to an ambitious domestic agenda and has telegraphed his desire for America to have either a light or non-existent footprint across much of the globe.

The slow American withdrawal coincides with the second change, in which four of the current great powers (Russia, China, India, and Japan) are revaluating, amplifying, or changing aspects of their grand strategy in a way that resembles a similar reshuffling that took place late in the nineteenth century.

Third, there are ominous parallels between the cauldron that created the conflict of the Great War and those simmering today. China, playing the role of nineteenth-century Germany, seems determined to upset the economic and military stability created by the United States and Japan, especially in the area of naval power and power projection. Japan is playing the role of the United Kingdom, an old power clinging to its power base by mobilizing nationalism and militarism. Russia, attempting to resurrect its glory by aggressive action, reminds us of a turn-of-the-century France. India, coming on the world stage for the first time, yet not quite ready for a big role, is reminiscent of the newly unified Italian peninsula of 1861.

A: I think you have to understand that China is patient. China is growing. China has 1.3 billion people. The world will come to China. If China waits, China will have more power, more influence and be able to determine outcomes to their favor, without war, without conflict. They can just use their influence.

The Russians, of course, are declining and so Russian power is greater today than it will be in five or 10 years’ time. If you’re China, you really don’t want the Russians to “rock the boat” too much in the near term. Causing problems for the U.S. is fine, but you don’t want them to become a pariah state for everyone else.

Q: Is there a possibility of a Cold War between the U.S. and China?

A: Longer term, that is a bigger concern. It’s not a concern today. But if you asked me in five or 10 years’ time, one of the potential scenarios of post-G-Zero is that the United States and China fundamentally move into different blocks. It’s possible.

Q: Will China become a big power, as big as the U.S?

A: No. The future is a long time, but if you ask me in 10 years’ time, China will probably be the largest economy, but their military will be a tiny fraction of that of the United States. Their technological capacity will be a tiny fraction of the U.S. Their energy production capacity will be a tiny fraction of the United States. Their diplomatic capabilities will be a tiny fraction of the United States. Their soft power will be a tiny fraction of the United States. Their cultural power will be a tiny fraction of the United States. Their universities will be so much worse. They will be a superpower, looking purely in terms of their economic might and they will not be a superpower in any other way.

The U.S. has so far been prepared to act as the guarantor of international stability, but may not be willing—or able—to do so indefinitely.

Though the era just before World War I, with its gas lighting and its horse-drawn carriages, seems very far off and quaint, it is similar in many ways—often unsettlingly so—to ours, as a look below the surface reveals. The decades leading up to 1914 were, like our own time, a period of dramatic shifts and upheavals, which those who experienced them thought of as unprecedented in speed and scale. The use of electricity to light streets and homes had become widespread; Einstein was developing his general theory of relativity; radical new ideas like psychoanalysis were finding a following; and the roots of the predatory ideologies of fascism and Soviet communism were taking hold.

Globalization—which we tend to think of as a modern phenomenon, created by the spread of international businesses and investment, the growth of the Internet, and the widespread migration of peoples—was also characteristic of that era. Globalization can also have the paradoxical effect of fostering intense localism and nativism, frightening people into taking refuge in the comfort of small, like-minded groups. One of the unexpected results of the Internet, for example, is how it can narrow horizons so that users seek out only those whose views echo their own and avoid websites that might challenge their assumptions.

While history does not repeat itself precisely, the Middle East today bears a worrying resemblance to the Balkans then.
It is tempting—and sobering—to compare today’s relationship between China and the U.S. with that between Germany and England a century ago. Now, as then, the march of globalization has lulled us into a false sense of safety.
Like the world of 1914, we are living through changes in the nature of war whose significance we are only starting to grasp.

Today’s globalization is suffering a populist blowback on a nearly global scale. Indeed, the only places not suffering such blowback are Latin America, Africa and Southeast Asia, frontiers where globalization’s widespread wealth creation is still resulting in very positive outcomes. Just about everywhere else, whether in the old West, the rising East or the Arab world, we’re seeing a build-up of social anger at globalization’s inequities and excesses that is stunning in its scope and persistence. In short, the world seems destined to either re-balkanize itself over these tensions or enter into a lengthy progressive era that corrects these imbalances and cleans up these corrupting trends.

Here’s where the value of the trans-Atlantic bond comes back in. For, remember, the old West has already processed the very same sort of mega-cycle back at the turn of the 20th century, when the world’s first version of a middle class initially came into its own as a potent political force. In that scary millenarian maelstrom, as today, terrorists, revolutionaries and radical fundamentalists abounded. In the end, both extremes of the ideological spectrum reached their catastrophically evil expression in the form of Stalinist Russia and Nazi Germany.

But not everybody in that old West got it wrong. Indeed, America and, to a lesser extent, Britain got it spectacularly right. Their shared Progressive Era was a classic example of co-evolution, in that both sides of “the pond” fed off each other’s experiments and successes — the women’s suffrage movement, social welfare, modern police departments, sanitation, mass transit, labor reforms, food and drug safety — while learning from their mistakes. But through it all, an economic landscape was substantially re-graded, leveled out, as it were, in a “fair deal” to the workingman that tamed all that raging populist anger. The leadership that was seen during the Progressive Era, embodied by the career of Theodore Roosevelt, is the same sort of leadership that America, and the world, needs today.Getting back to my “C-I-A” world of tomorrow, these three superpowers — two in the making, one actual — are currently in a race to see which can process its own domestic populist rage faster and more effectively.

Like this:

This report is the synthesis of a 48-hour crowdsourced brainstorming exercise, where over 60 Wikistrat analysts from around the world collaboratively explored the issues that will dominate the foreign policy agenda in 2013..

The year 2012 helped bring answers to a few of the questions that loomed large for foreign observers when the year began. We now know who will lead the United States for the next four years. We have confirmation that the Muslim Brotherhood and its affiliated branches across the Arab Middle East remain the dominant, if often struggling, political force in the countries where revolutions have toppled dictators. And we have learned, to little surprise, that the much-touted efforts by Washington to pivot towards Asia will remain constrained by the pullback from continuing crises in the Middle East, where major long-standing unresolved conflicts—notably the stand-off with Iran over its nuclear program and Israeli-Palestinian tensions—still occupy the front burner.

The distinction between threats and opportunities was not always clear, particularly because a well-managed threat can turn into an opportunity, just as the reverse is true. As expected, the ongoing developments in the turbulent Middle East occupied much of the analysts’ thoughts, suggesting numerous possible outcomes. But other areas of the world and other supranational trends also made the cut.

Here are some of the top negative & positive scenarios from Wikistrat’s simulation.

Chinese technocrats set out to create an industry that would dominate the world, and they succeeded. They aided solar cell manufacturers with easy credit from state banks—perhaps as much as $18 billion of cheap loans—and, some say, subsidies. As a result of central and local government support, Chinese manufacturers began to expand rapidly. Chinese competitors now own 70% of the world’s wafer-producing capacity.

Make that overcapacity. “Massive subsidies and state intervention have stimulated overcapacity more than 20 times total Chinese consumption and close to double total global demand,” said Milan Nitzschke, president of EU ProSun, in a statement released late last month. The company alleges that 90% of Chinese production had to be exported and that Beijing used subsidies to keep its manufacturers in business.

The powerful Chinese National Development and Reform Commission wants to see two-thirds of panel makers go out of business. Only the largest producers, which are presently nonviable, will survive.

In short, central government technocrats, to salvage their industrial policy, will now have to destroy what they worked so hard to create.

Like this:

Although poorer countries still limit themselves to ad hoc welfare offerings, fitting the spending level to revenues one budget at a time, there is an increasing trend towards entitlements served by statutory institutions that will outlive the budgetary cycle. As these systems mature, welfare provision will be demand-led, not supply-driven; welfare will become integral to the state. Asia’s tigerish economies are turning marsupial, carrying their dependants along with them as they prowl.

Some of the national leaders who unleashed those tiger economies would be shocked and disturbed by the development. To them the welfare state was a Western aberration that would serve only to undermine thrift, industry and filial duty.

It seems that every country that can afford to build a welfare state will come under mounting pressure to do so. And much of Asia has hit the relevant level of prosperity (see chart 1). Indonesia is now almost as developed as America was in 1935 when it passed the landmark Social Security Act, according to figures compiled by the late Angus Maddison, an economic historian. China is already richer than Britain was in 1948, when it inaugurated the National Health Service (NHS) which, to judge by political ructions—and Olympic opening ceremonies—has become crucial to its sense of national identity.

Like this:

For the last 40 years, Americans have lagged in recognizing the declining fortunes of their foreign rivals. In the 1970s they thought the Soviet Union was 10 feet tall — ascendant even though corruption and inefficiency were destroying the vital organs of a decaying communist regime. In the late 1980s, they feared that Japan was going to economically overtake the United States, yet the crony capitalism, speculative madness, and political corruption evident throughout the 1980s led to the collapse of the Japanese economy in 1991.

Could the same malady have struck Americans when it comes to China? The latest news from Beijing is indicative of Chinese weakness: a persistent slowdown of economic growth, a glut of unsold goods, rising bad bank loans, a bursting real estate bubble, and a vicious power struggle at the top, coupled with unending political scandals. Many factors that have powered China’s rise, such as the demographic dividend, disregard for the environment, supercheap labor, and virtually unlimited access to external markets, are either receding or disappearing.

The current economic slowdown in Beijing is neither cyclical nor the result of weak external demand for Chinese goods. China’s economic ills are far more deeply rooted: an overbearing state squandering capital and squeezing out the private sector, systemic inefficiency and lack of innovation, a rapacious ruling elite interested solely in self-enrichment and the perpetuation of its privileges, a woefully underdeveloped financial sector, and mounting ecological and demographic pressures.

For China to truly advance and become a genuine competitive threat, the political system has to decide to divorce wealth from political power. Otherwise we’re looking at decay and decline and a very short “Chinese century.”

US hit that moment and launched itself into a multi-decade progressive era that cleaned up a lot of things but government most of all.

As I have said many times, the world needs a small army of Teddy Roosevelts right now – but China most of all.

Like this:

At first glance, that proposition seems preposterous. After all, the People’s Bank of China, the central bank, held $3.24 trillion of foreign currency reserves at the end of the first half of this year. Yet foreign currency, no matter how plentiful, has limited usefulness in a local currency crisis. In any event, the PBOC’s foreign currency holdings are almost evenly matched with renminbi-denominated liabilities that were incurred to acquire all those dollars, pounds, euros, and yen. As a result, the central bank cannot use the reserves without driving itself deep—actually, deeper—into insolvency.

When shops close to avoid predatory officials, we know China’s coffers are almost empty. And to make matters worse, the country’s financial problems will be harder to solve now that the country’s balance of payments has turned negative. The net outflow in the second quarter of this year was the first since 1998. The country’s reserves also dropped in Q2. We should not be surprised: there was perhaps $110 billion of capital flight during that period, and the gusher outflow looks like it continued in June. Chinese citizens are losing confidence fast.

No developing country has ever escaped a major financial crisis. The People’s Republic of China is about to have its first one now

Yale Prof. Charles Hill sees two very different kinds of challenges to the liberal, state-based world order. One, the aggressive kind, is exemplified by China. The other, very different, can be seen in the European Union.

“The way the world through almost all of history has been ordered is through empires. The empire was the normal unit of rule. So it was the Chinese empire, the Mughal empire, the Persian empire, and the Roman empire, the Mayan empire.”

What changed this was the Thirty Years War in Europe in the 17th century. “That was a war between the Holy Roman Empire and states, and states were new. They had come forward in northern Italy in the Renaissance and now they were taking hold in what we think of as a state-sized entity. The Netherlands and Sweden and France were among these. . . . France was both an empire and a state—and the key was when [Cardinal] Richelieu took France to the side of the states, which was shocking because France was Catholic and the empire was Catholic and the states were Protestant.”

“My view is that every major modern war has been waged against this international system. That is, the empire strikes back. World War I is a war of empires which comes to its culmination point when a state gets into it. That’s the United States.” And then we get something very interesting added: “That’s Woodrow Wilson and [the promotion of] democracy.”

“World War II, and I think this is uncomprehended although it’s perfectly clear, . . . World War II is a war of empires against the state system. It’s Hitler’s Third Reich. It’s Imperial Japan.” The Axis goal “is to establish an empire. The Nazi empire would be Europe going eastward into the Slavic lands. The Japanese empire in the Greater East Asia Co-Prosperity Sphere, as they called it.”

In California’s Legislature just authorized to spend, with Federal assistance, an under-estimated $100 billion to build a route between San Francisco and Los Angeles that will consist of a government monopoly riding on tracks near one of the largest earthquake faults in the world for most of its length, all to deliver passengers slower and at greater overall cost between two fixed points. Airlines give consumers a choice of carriers and airports on either end of that route, will deliver passengers more quickly, and probably with a much wider choice of departure and arrival times.

In China the problem — beyond the idea of spending untold billions on the antiquated technology of static choo-choo trains — is that the three people making all these wonderful decisions now have a high-speed rail system plagued by failure, corruption, out-of-control costs and legitimate safety concerns

The fact is that China’s train wreck was eminently foreseeable. High-speed rail is a capital-intensive undertaking that requires huge borrowing upfront to finance tracks, locomotives and cars, followed by years in which ticket revenue covers debt service — if all goes well. “Any . . . shortfall in ridership or yield, can quickly create financial stress,” warns a 2010 World Bank staff report.

Such “shortfalls” are all too common. Japan’s bullet trains needed a bailout in 1987. Taiwan’s line opened in 2007 and needed a government rescue in 2009. In France, only the Paris-Lyon high-speed line is in the black.

In his latest book, Civilization, The West and the Rest, the economic and financial historian Niall Ferguson argues that Western civilization’s rise to global dominance over the past 500 years was due mainly to six killer apps, as he calls them: competition, science, rule of law, modern medicine, consumerism, and the work ethic.

While “the Rest” lacked these concepts, they might not for much longer, as emerging markets are quickly catching up. Someday, they could even surpass the West. (On May 22 and 29, PBS will air a program based on Civilization.)

What made the West unusual was that risk takers were not only rewarded but honored, whether in science, exploration, or in trade. Spreading across the Atlantic from Europe is an anti-risk culture that manifests itself in two ways. One is the welfare state, designed to remove risk from your life by guaranteeing you an income from the cradle to the grave. That’s great because it means that nobody is starving in the streets for want of work. But it isn’t great if you create poverty traps and disincentives, so that people in the bottom quintile never work, which is the case in much of Europe.

The other way in which the anti-risk culture manifests itself is with the manic regulatory mentality that tries to prescribe rules for every eventuality, including the tiny, tiny risk that an asteroid will hit this building. Regulations that protect from every eventuality end up being paralyzing because the more things are proscribed, the more the ordinary entrepreneur has to be afraid that if he doesn’t comply, he will get sued.

Like this:

America has simply reached the historical limit of its credit, a limit represented not by the federal debt ceiling, but by the widespread global perception that our best days are behind us absent significant restructuring across our economy and government. By and large, neither U.S. political party wants to hear this, much less act upon it. Instead, we Americans either assume that our next “exceptional” rebound will unfold naturally or believe that it can somehow be achieved by sabotaging China’s rise. Our truly unimaginative political leaders in both parties reach for both straws simultaneously, a combination of hubris and fear that is both odd and depressing.

Any expert familiar with China’s current situation recognizes its precariousness: a vast nation of more than 1 billion souls, with more than half of them still living in incredible poverty, attempting to shift — simultaneously! — from extensive to intensive growth and from centralized political authority to something necessarily more federalized and democratized. Amid these combined evolutions, the Chinese Communist Party is most definitely doomed, and it knows it. Already, senior party officials, especially those in retirement, admit this looming reality.

We can only hope that the world will play the Sino-American rivalry more intelligently that either of its combatants do, until generational change on both sides eventually works its political magic. (more…)

impressive timelapse video from his company’s latest project: a 30-story tall, 183,000-square-foot hotel built in just 360 hours. Just 15 days!.

It was erected near the Dongting lake, in the Hunan Province, China, by Broad Group, a Chinese construction company specialized in sustainable architecture. The building uses prefabricated modules (with a +/- 0.2mm precision in the fabrication process) mounted on a steel structure, with diagonal steel bracing.

Since 2007, Mexico, some locations in Europe and locations in Asia other than China have gained a competitive advantage for offshore manufacturing. In addition to Mexico, emerging LCCs, including India, Vietnam, Russia and Romania, had lower landed cost for their exports to the U.S.

Like this:

Authorities last month had already ordered leading competitor Hunan Satellite to suspend broadcasts of the hugely popular “American Idol” type singing contest “Super Girl,” allegedly for running overtime. Stations were already cutting contest shows in which viewers vote for their favorite contestant, a concept frowned on by party cadres who don’t permit competitive elections or other facets of Western-style democracy.

China’s television watchdog has capped the amount of entertainment programs, including reality TV shows, that satellite channels can broadcast from the start of 2012.Each of the country’s 34 satellite channels will be limited to two such programs each week, said a statement issued Tuesday by the State Administration of Radio, Film and Television SARFT. Under the new directive, a channel can also broadcast a maximum of 90 minutes of content defined as entertainment every day during prime time – 7:30 p.m. to 10 p.m.The decision is the latest move to curb TV shows of “excessive entertainment” and “low taste”, said the statement. Within these brackets are some matchmaker programs, talent contests, talk shows and reality shows. Every channel has also been ordered to create a program that promotes traditional virtues and socialist core values.

Like this:

Shipping and logistics adds 17 percent; finding a viable Chinese vendor adds 1 percent; quality issues add 4 percent; travel and communications add 1 percent and “all others” add another 1 percent to the total price of a product manufactured offshore. Some products are simply not good to produce offshore — those made with highly automated precision processes; those that are bulky and heavy; products that require flexible scheduling; and products that undergo many revisions, causing an increase in quality failures.

In a case study comparing costs in the United States and China, Meeker and his MIT colleague Jay Mortenson found that it is cheaper by 8 percent to produce a current design in China. There are substantial savings associated with purchased parts from China that include direct labor (79 percent savings versus U.S. labor rates), indirect labor and salaries (61 percent savings), benefits (75 percent savings), overhead (40 percent savings) and selling, general and administrative (SG&A) (11 percent savings).

When adding logistics to the China price, the cost advantage of producing in China shrinks to 8 percent: $13.85 for a case-study product made in China versus $14.99 in the United States. But when design for manufacturing and assembly (DFMA) software is applied to the same product, the China advantage vanishes. The China cost declines to $9.79 versus the U.S.-made product at $9.47

Like this:

Numerous world powers served as global or regional hegemons before we came along, and their record on economic development was painfully transparent: Elites got richer, and the masses got poorer. Then America showed up after World War II and engineered an international liberal trade order, one that was at first admittedly limited to the West. But within four decades it went virally global, and now for the first time in history, more than half of our planet’s population lives in conditions of modest-to-mounting abundance — after millennia of mere sustenance.

You may choose to interpret this as some sort of cosmic coincidence, but the historical sequence is undeniable: With its unrivaled power, America made the world a far better place.